Christopher Ryon is portfolio manager of Thornburg Investment Management. He joined Thornburg as associate portfolio manager in 2008 and was named portfolio manager in 2009.

Chris holds a BS from Villanova University, an MBA from Drexel University, and is a CFA charterholder. Chris has over 30 years of experience in the investment management field. Before joining Thornburg Investment Management, he served as head of the long municipal bond group for Vanguard Funds, where he oversaw the management of more than $45 billion in 12 intermediate- and long-term municipal bond funds.

In 2013, Chris was selected as a member of the Municipal Securities Rulemaking
Board’s (MSRB) board of directors.

Nicholos Venditti is portfolio manager for Thornburg Investment Management. Nick joined Thornburg in 2010 as a fixed income research analyst and was promoted to ­associate portfolio manager in 2011 and portfolio manager and managing director in 2015.

Nick earned an MS in finance from Syracuse University, an MA in applied economics from the University of North Carolina–Greensboro, and a BA from Trinity University. Prior to joining Thornburg Investment Management, Nick spent three years working as assistant vice president for bond insurer FSA (now merged with Assured Guaranty Corp).

Raise your hand if you believe the municipal
bond market represents a screaming
buy. We count a total of just four hands—out of the hundreds (perhaps dozens)
of readers. Despite the questionable scientific
accuracy of this informal poll, it
highlights the disconnect between the
instincts of most municipal bond participants
and the broader investment decisions
that have permeated the municipal
market throughout the year.

All year investors have feared a shock—any kind of shock—that would send the
municipal market roiling. Early in 2017,
those fears revolved around the prospect
of increased supply due to infrastructure
spending plans, deterioration of the
credit quality of the entire health-care
sector in the face of massive health-care
reform, as well as tax reform that would
evaporate demand as all of our marginal
tax rates fell with interest rates moving
higher based on optimistic visions of
economic growth. And yet, in spite of
all of those concerns, investors broadly
bought longer, lower-quality bonds, taking
on more and more risk for less and
less incremental yield.

All the while these fears lurked just
beneath the surface, it still seems as
though the strategy of many municipal
bond participants relies on taking outsized
risk, praying they can hit the sell
button faster than the next guy, should
volatility rear its head.

Still skeptical? Let us give you an example.
In late May, the State of Illinois
announced that they were on the precipice
of failing to pass a budget for the
third year in a row. Given that it was the
third time, it shouldn’t have been that
surprising. But, investors, with their
hands ever hovering over the sell button, panicked. All of a sudden spreads
on Illinois
paper blew out by almost
150 basis points (1.5%) in the span of 12
hours. It is worth noting that Thornburg
had no direct exposure to the State of
Illinois, largely because we didn’t believe
the price reflected the credit risk. After
the spread blowout, however, we added
it to the portfolio. Within a week or so,
Illinois announced the passage of a budget.
A budget that, by the by, did nothing
to address the fundamental credit issues
in the state. And just like that, spreads
on Illinois tightened and investors’
hands returned to their natural position
just above the sell button. For what it is
worth, we sold our position at the new
higher prices.

So it continued in the fourth quarter of
2017. Tax reform came to fruition and
sent the market reeling. News reports
surrounding the elimination of the
advanced refunding provision as well as
a possible elimination of private activity
bonds pushed issuers to the market in
record numbers. Much like the Illinois
case, investors initially reacted with fear,
then confidence, then fear, and finally
ended the year with some confidence.

Where do we go from here? The reactions
to tax reform, and it’s effect on the
supply side of the market, in our minds,
is overblown. While it is certainly true
that refunding bonds have been a major
driver of supply over the past several
years, it is important to remember that
the economic benefit of refunding debt
is predicated on lower interest rates. To
the extent that we believe rate pressure
is shaded higher, the market likely would
have seen substantially less advanced
refunding issuance, in the near term,
regardless of tax reform.

The elimination of the SALT (State
and Local Tax) deduction could potentially
impact demand in high-tax states.
Several of those states already trade at
extremely high prices, and the others
have potentially serious credit issues.
Spread widening in places like New Jersey
are likely to drown out any price
pop from investors looking to save a little
on their tax bill.

Demand is perhaps more interesting.
The decrease in corporate tax rates significantly
reduces the value of the tax
exemption to banks, insurance companies,
and other corporate municipal
buyers. Should they rotate assets out of
the tax-exempt space and into the taxable
fixed income space, the municipal
market could lose as much as 15% of the
demand. This is far from the majority,
but certainly enough for downward price
pressure.

Pair this with renewed discussions
around infrastructure spending, the continued
unwinding of the Federal Reserve
balance sheet, and the prospect for several
more rate increases and there are
quite a few opportunities for volatility—especially in a market where investors
seem skittish and eager to react to any
perceived negative news.

Are municipal bonds a screaming buy?
We are not going to raise our hands.
Risk is overpriced, and there are political
and economic events on the horizon
that could lead to a lot of action around
the sell button. That said, there is always
a reason to own municipal bonds. Asset
allocation, portfolio diversification, and
low long-term correlation to other asset
classes still provide strong reason to
invest in municipal bonds. One day we
will pound the table, or the television, or
the keyboard demanding you over allocate
to this asset class. In the meantime,
at Thornburg we will continue to focus
on risk and reward. On days when everyone
is selling out of fear, we are going
to look to be buying, and on days when
everyone is buying, we are content to sit
on our hands.

Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate so shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than quoted. For performance current to the most recent month end, see the mutual funds performance page or call 877-215-1330.The Low Duration and Limited Term funds have a maximum sales charge of 1.50%. The Intermediate Municipal Fund and the Strategic Municipal Income Fund have a maximum sales charge of 2.00%.

2018 has already seen several events impacting the municipal bond market. Whether it is tax reform, infrastructure spending, or interest rate increases from the Federal Reserve, the potential effects on investor’s portfolios could be dramatic.

Related Video

September 2017

Collaborative Process Key for Thornburg

Important InformationBefore investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing this and other information, contact your financial advisor or visit our literature center. Read them carefully before investing.

Show More

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 12/31/17.

Investments carry risks, including possible loss of principal. Portfolios investing in bonds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds. The value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. This effect is more pronounced for longer-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Investments in lower rated and unrated bonds may be more sensitive to default, downgrades, and market volatility; these investments may also be less liquid than higher rated bonds. Investments in derivatives are subject to the risks associated with the securities or other assets underlying the pool of securities, including illiquidity and difficulty in valuation. Investments in the Fund are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity.

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.

Class I shares may not be available to all investors. Minimum investments for the I share class may be higher than those for other classes.

Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.

Income earned from municipal bonds is exempt from regular federal and in some cases, state and local income tax. Income may be subject to the alternative minimum tax (AMT).

There is no guarantee that the Fund will meet its investment objectives.

financial advisor access

Sign in to access resources and materials for financial professionals.

Important Disclosure: For Professional Investors Only

This area of our web site is only directed at non-U.S., institutional and professional investors and is not suitable for individual investors.

The information regarding funds for non-U.S. investors is for informational purposes only, does not constitute an offer for shares, products or services and should not be construed as an offer to sell or a solicitation of an offer to buy to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence.

This site is operated by Thornburg Investment Management, Inc. on behalf of Thornburg Investment Management Ltd. and Thornburg Global Investment plc. Before continuing, please read the following important information and if you continue on, you confirm that you have read and agree to these provisions. Thornburg Global Investment plc is authorised under the UCITS Regulations and provides shares in UCITS registered Funds for non-U.S. investors. The Funds of the Company are registered in Ireland and are available only to residents of those jurisdictions where allowed by applicable law. Purchase orders from U.S. persons or other ineligible investors will not be accepted by the Fund’s Administrator.

Thornburg Investment Management Ltd. is an Appointed Representative of Robert Quinn Advisory LLP, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (no. 548030). Thornburg Investment Management Ltd. manages Thornburg's international business development and relationship management activities. Registered in England and Wales no. OC385286.

This content is not intended for U.S. persons. If you are trying to find information about Thornburg Investment Management or the Thornburg Funds registered for sale in the United States, please close this dialog and look for Mutual Funds titles in the main menu. Further information on what constitutes a U.S. person is available here and in the event that you wish to use this website it is your responsibility to ensure that you understand the terms of this definition and comply with it.

By continuing you confirm that you have read and agree to the provisions above.